Final answer:
The increase in liabilities (deferred taxes) when converting from LIFO to FIFO under rising prices would be a variable amount. The actual change depends on the difference in inventory valuation and the year's profits, sales, and cost of goods, which are not constant.
Step-by-step explanation:
When converting from LIFO to FIFO assuming rising prices, liabilities (deferred taxes) increase by a variable amount. The change in deferred tax liabilities is due to the difference in inventory valuation between LIFO and FIFO. Under LIFO, assuming prices are rising, the newest inventory (which is generally higher in cost) is used first in cost of goods sold calculations, leading to higher costs and lower profits on the income statement. When switching to FIFO, older, cheaper inventory is used first, resulting in lower cost of goods sold and higher profits.
These higher profits, before taxes, result in increased tax liabilities. Since profits vary year to year based on sales and the cost of goods, the increase in deferred taxes is not a fixed figure but will vary depending on these factors.
Therefore, it's important to remember that during periods of rising prices, the switch from LIFO to FIFO could result in increased income tax expense due to higher reported inventory costs, but the exact amount can fluctuate resulting in a variable increase in deferred tax liabilities.